Real Estate Financing

A California deed of trust involves three parties: the trustor (borrower), the beneficiary (lender), and the trustee, who holds bare legal title as security.

Because deeds of trust contain a power of sale, lenders typically foreclose through a nonjudicial trustee's sale following statutory notice and timing requirements.

An acceleration clause lets the lender demand the full balance on default, and a due-on-sale (alienation) clause lets the lender call the loan on sale or transfer.

FHA loans are insured by the Federal Housing Administration and made by approved lenders; VA loans are guaranteed by the Department of Veterans Affairs and often allow no down payment for eligible veterans.

Under the Cal-Vet program the state buys the property and resells it to the eligible veteran, usually by contract of sale.

A conventional loan is not insured or guaranteed by a government agency and may require private mortgage insurance when the down payment is under 20 percent.

A fully amortized loan retires all principal and interest through equal periodic payments, while a balloon loan leaves a large final payment due at maturity.

An adjustable-rate mortgage's rate equals a fixed margin plus a fluctuating index, with caps limiting rate changes.

A prepayment penalty compensates the lender for early payoff and is limited by California law on many owner-occupied residential loans.

One discount point equals one percent of the loan amount and is prepaid interest used to buy down the rate; points are calculated on the loan, not the purchase price.

The loan-to-value ratio equals the loan amount divided by the property's value or price, and lenders cap LTV to limit risk.

Simple annual interest equals the outstanding principal balance times the interest rate; divide by 12 for a monthly interest amount.

RESPA requires disclosure of settlement costs and prohibits kickbacks and unearned referral fees in most federally related mortgage loans.

The Truth in Lending Act, implemented by Regulation Z, requires disclosure of the annual percentage rate and total finance charges.

California usury law caps interest on certain private loans but exempts loans made or arranged by licensed real estate brokers and institutional lenders.